Affluent Chinese Are Buying Travel Instead of Diamonds

Kim Ho-Chun  / Reuters

Passengers leave Chinese cruise ship Henna, which was stranded at the port of Jeju on Jeju island, south of Seoul September 15, 2013. Kim Ho-Chun / Reuters

Skift Take: Luxury travel is taking a bite out of Chinese spending on other high-end products.

— Andrew Sheivachman

China’s newfound penchant for luxury travel poses the latest threat to a turnaround for the $80 billion diamond industry.

Chinese deluxe spending on travel is the “fastest-growing competitor” standing in the way of diamond sales in the world’s biggest consumer market, said De Beers SA Chief Executive Officer Bruce Cleaver. To win those travel dollars, he said De Beers could even see itself tying up with the luxury travel market somehow.

“Luxury travel is certainly a competitor to diamonds,” Cleaver said in an interview in Hong Kong Thursday. “If there’s a way to link luxury travel to an African destination where the diamond came from, we’d certainly look into that too.”

The world’s biggest diamond producer is seeking to kickstart an industry that’s seen prices for polished diamonds slump for the past six years. Its major Asian markets including China and India reported flat or declining sales in 2016. The company is also facing hurdles as a younger generation of Chinese shoppers increasingly spend more on high-end electronics, travel and fine dining than on baubles.

Worldwide demand in 2016 was essentially flat, as a 4.4 percent gain in the U.S. offset sluggishness in Asia, according to a De Beers industry report published Thursday. Sales in China and India showed improvements in the first half of 2017, with single-digit growth from a year earlier, said Cleaver. The industry expects gains for those countries in the next five years as the global economic outlook improves, though Japan won’t grow as fast as its Asian peers due to its aging population, he said.

De Beers is seeking to influence buying trends by spending $140 million this year to advertise diamonds, the most since 2008. It is focusing on women in its main markets — particularly those between the ages of 18 and 33 — who De Beers says are buying diamonds for themselves as their earning power increases.

Winning over those shoppers won’t be easy, especially in China, where diamond sales declined 4.8 percent last year in dollar terms. Competition from travel is a big challenge. China is the world’s largest source of outbound travelers, according to the World Tourism Organization. More than 135 million Chinese traveled in 2016, and their spending rose 12 percent to $261 billion.

Even at home, rich shoppers who want to make a fashion statement are frequently opting for items such as Louis Vuitton bags and Gucci loafers. De Beers also is competing against companies including Chow Tai Fook Jewellery Group Ltd. that are offering fashion jewelry at lower prices to lure Chinese shoppers.

“We are still pretty positive,” said Cleaver. “It’s a question of adapting your brands to the future, which I think we have all the tools to do.”

©2017 Bloomberg L.P.

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Zimbabwe Hosted Annual Carnival Despite Acute Problems

Associated Press

The 10-day carnival in Zimbabwe has been held annually since 2013 with the exception of last year, when funding problems forced its cancellation. Associated Press

Skift Take: Zimbabwe’s carnival appears to have been boondoggle as the country faces severe hardships, including drastic job cuts for Air Zimbabwe employees. There isn’t much positive going on in Zimbabwe for the moment when it comes to tourism or otherwise.

— Sean O’Neill

An international carnival aimed at boosting Zimbabwe’s tourism industry has ended in the economically troubled country.

Some saw the festivities that featured artists from Brazil, Cuba, Egypt and elsewhere as a relief from the struggle to get by in the southern African nation.

Others called the carnival a waste of money in a country struggling to pay civil servants’ salaries and battling acute currency problems.

Tourism Minister Walter Mzembi defended the carnival as necessary to promote tourism, saying private sponsors paid for most of it.

The 10-day carnival has been held annually since 2013 with the exception of last year, when funding problems forced its cancellation.

A law banning the consumption of alcohol in public was suspended for the duration of the carnival.

The news comes after this summer’s word that Air Zimbabwe will lay off about a third of its workers.

Copyright (2017) Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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Priceline’s Booking Defends Commissions After Swiss Launch Probe Into ‘Abusive’ Pricing

Swiss authorities are investigating’s alleged ‘abusive’ commission prices for hotels.

Skift Take: Regulators show fairly often that they don’t understand the travel business. In many cases — according to Expedia, at least — commission levels have been falling in recent years, although hotels, particularly smaller ones or independents, still sometimes indeed get whacked.

— Dennis Schaal

Online travel giant is defending its policy on the commissions it charges in Switzerland after a state agency opened an investigation into alleged “abusive” pricing.

Spokeswoman Leslie Cafferty of parent company Priceline Group says told the Swiss price watchdog in a June meeting that its commission rates were “appropriate” compared to competitors as well as rates charged in comparable countries. She did not specify those rates.

Switzerland’s price watchdog agency said Wednesday it found evidence that may be charging hotels “abusive high prices.” Under Swiss law, the agency has the authority to intervene and set market prices in some cases.

Cafferty said Thursday that’s rates apply to “the value of the services” that it provides, and that the company hasn’t raised rates in Switzerland since 2010.

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Business Travelers Weigh Ease of Biometrics Against Privacy Concerns


The use of biometric information for security is on the rise, but some warn that travelers should be cautious about how their data is used. Pictured here is facial recognition technology used by KLM as part of a test program at Schiphol Airport. KLM

Skift Take: Business travelers are embracing the increasing use of facial-recognition software and fingerprint reading at airports to speed lines, but privacy advocates raise concerns about the security of information and its potential use.

— Hannah Sampson

At five airports across the U.S., travelers departing on some international flights are being asked to stick their faces in front of a camera before boarding the plane. The machine takes a photo and compares it with a database of images of people who are supposed to be on the flight. If the software finds a match, the person proceeds to board. If it doesn’t, the traveler gets additional screening from a security officer.

The facial-recognition program run by U.S. Customs and Border Protection, in its pilot stage but likely to expand next year, aims to increase security and keep lines moving. Those are two important goals for harried business travelers.

Corporate travel groups generally have supported the pilot program, while noting that it is in an early stage and that travelers’ personal information has to be tightly guarded. And the   U.S. government’s pilot program is just one of an increasing number of efforts around the globe to use biometric information for security screening.

“The truth is, I’d be willing to put a chip in my arm if I never had to wait in line,” said Craig Fichtelberg, co-founder and president of Chicago-area travel management company AmTrav Corporate Travel. “I definitely think business travelers will be the first adopters, in the same way that they were for TSA PreCheck and similar programs.”

For frequent flyers who are more concerned than Fichtelberg about sharing their personally identifying information, such as facial data and fingerprints, CBP offers some reassurances. Where CBP runs the facial-recognition program, according to the agency’s privacy assessment, photos captured as travelers board will be kept for 14 days to improve the matching algorithm, then deleted.

As of Aug. 1, the CBP is operating its pilot program in Hartsfield-Jackson Atlanta International Airport, Washington Dulles International Airport, George Bush Intercontinental Airport in Houston, Chicago O’Hare International Airport and McCarran International Airport near Las Vegas.

In three airports – Hartsfield-Jackson Atlanta International Airport, John F. Kennedy International Airport in New York and Boston Logan International Airport – the U.S. government is letting airlines operate the facial-recognition program. (Atlanta has both versions.) CBP recommends, but does not require, that airlines keep the matching results no longer than 14 days.

“The way the program is described now doesn’t sound too offensive,” said Michelle Richardson, deputy director of the Freedom, Security, and Technology Project at the Center for Democracy & Technology in Washington, D.C. She recently participated in a meeting with CBP and privacy advocates. “But it’s very unlikely that it’s going to stay in this form going forward. For example, as it spreads to other airports, and the collection gets bigger, are you going to see other agencies asking for that information?”

Although flyers may be able to opt out in some cases, CBP advises in the privacy assessment: “The only way for an individual to ensure he or she is not subject to collection of biometric information when traveling internationally is to refrain from traveling.” That means business travelers could have to choose between giving up personal information and forgoing a trip required for their jobs. Biometric data could include measurements of physical characteristics such as fingerprints, facial features, and iris scans.

Further, if flyers who refuse to submit biometric data are someday shunted into long, understaffed screening lines, that doesn’t count as a choice, said Adam Schwartz, senior staff attorney with the civil-liberties team of the Electronic Frontier Foundation, a nonprofit defending digital privacy.

“If one line is whizzed through with facial recognition and the other line has to stand there for two hours to get to one employee, that would not be full consent,” Schwartz said. “Travelers thinking about giving up biometrics for faster access to the plane ought to consider the long-term privacy consequences and what companies are going to do with the data.”

Already, travelers have been giving up more of their personal information in exchange for easier movement through security. TSA PreCheck and Global Entry, which provides expedited clearance upon arrival in the U.S., require fingerprints to enroll. And Clear, a private biometrics security company in expansion mode, needs an iris scan and fingerprint. One airline, Scandinavia’s SAS, has even implanted a chip in one employee’s hand for the purpose of testing easier boarding and lounge entry.

And globally, airlines outside the U.S. have been experimenting with facial-recognition software; KLM, for example, is testing it on flights departing Amsterdam. Starting in 2018, businesses operating in European Union countries will have to follow stricter regulations to protect personally identifying information of EU citizens. The U.S. doesn’t have comparable rules, noted John Michener, chief scientist and principal security consultant for Casaba Security. “In the U.S., we have free internet because we are the product,” he said. “We pay for the internet by our loss of privacy. And we made our bargain before people realized the extent of the damage.”

Among the chief concerns is that U.S. companies could sell information from facial-recognition databases. Facebook, for example, says it won’t directly sell user data, but it uses facial recognition to support its research into artificial intelligence that would improve ad targeting.

Also, databases can be hacked. In 2015, the U.S. Office of Personnel Management acknowledged that 5.6 million people’s fingerprints were compromised in a government data breach. Passwords can be changed if compromised; faces and fingerprints cannot.

Those risks should be weighed against the wear and tear on frequent travelers from current screening systems, said Mike McCormick, executive director and chief operating officer of the Global Business Travel Association.

“We generally are in favor of using biometrics,” he said. “Everything we’ve seen and heard so far has been positive. For business travelers, you really aren’t giving up any information that your company doesn’t already know about you and isn’t readily available.”

McCormick adds that it’s important for companies to communicate with employees about changes to airport security, listen to concerns, and provide opportunities for feedback.

“You hope the government systems are in place to protect that data, because you don’t want that falling into the wrong hands,” said Greeley Koch, executive director of the Association of Corporate Travel Executives. “From the standpoint of the business traveler, we’re looking for anything that makes it easier and faster to get through the horrendous airport experience. As we go toward other methods, the safety and security of this biometric data has to be paramount.”

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Thomas Cook and Expedia Reach Wide-Ranging Deal for Hotel Sourcing and Selling

Thomas Cook

A Thomas Cook retail outlet. The company has struck a hotel outsourcing deal with Expedia. Thomas Cook

Skift Take: Thomas Cook’s efforts to strip its hotel business back to its core exclusive sun and beach properties continues. The deal with Expedia seems more wide-ranging than the previous tie-up with Webjet, and chief executive Peter Fankhauser’s comments hint at a potential for a closer arrangement in the future.

— Patrick Whyte

Thomas Cook has formed a strategic alliance with Expedia, which will see the U.S. travel giant supply hotels for its city and domestic holiday business.

Both sides will aim to benefit from the multi-year agreement with Expedia providing the technology for the bookings, while at the same time Thomas Cook will have the option to offer its core sun and beach package holidays on Expedia sites globally, broadening its distribution.

Also as part of the new alliance, Thomas Cook’s primary websites, contact centers, stores and distribution to affiliated travel agents will eventually be powered by the Expedia platform for various types of travel bookings.

This obviously has the benefit of reducing costs for Thomas Cook and at the same time offers Expedia greater scale in Europe.

The agreement is part of the UK-based tour operator’s attempts to refocus its hotel offering. Instead of directly managing a massive range of hotels, Thomas Cook is concentrating on a smaller number of own-brand and partner properties with the rest effectively outsourced.

The Expedia deal follows a similar tie-up with Australia-based Webjet’s European unit Sunhotels, which covered 3,000 mainly sun and beach hotels.

On a call with analysts, Chief Executive Peter Fankhauser said the deal would result in a one-off cost of $13 million (£10 million) but would save around $20 million (£15 million) over the next two years. Together with the Webjet deal, Thomas Cook will save an estimated $27-$33 million (£20-£25 million).

Fankhauser also left the door open for future partnership agreements potentially in the airline sector but he declined to comment on the possibility of a joint bid for Air Berlin.

Fankhauser, said: “Joining forces with a company that has the global reach and expertise of Expedia will allow Thomas Cook to further simplify our systems and processes. At the same time, this will free us up to focus on holidays to our own-brand and selected partner hotels in sun & beach locations where we know we can really make a difference to customers. I am confident this marks the first step in a long-term and mutually beneficial relationship with Expedia.”

Expedia brand president, Aman Bhutani, said: “Expedia’s Global Partner Solutions business brings to life the ability to leverage the strength of our technology and operations for our partners, powering leading brands with private label booking engines, agent tools, web services and operations for all travel products, including lodging, flight, package, and car rental.”

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HomeAway’s New Revenue Management Platform is the Latest Industry Disruptor for the Fast-Evolving Vacation Rental Industry

Today, at its software user conference, Expedia-owned HomeAway launched a revenue management and pricing platform, MarketMaker. With MarketMaker, vacation rental owners and managers are able to compare pricing with other homes listed on HomeAway’s sites and to accept pricing suggestions offered by the largest online marketplace for second home rentals. HomeAway’s creation of this revenue […]

The post HomeAway’s New Revenue Management Platform is the Latest Industry Disruptor for the Fast-Evolving Vacation Rental Industry appeared first on VRM Intel.

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Powered by WPeMatico Buys Evature for Its Chatbot Talent

Chatbots are a popular communication tool and’s new acquisition, Evature, brings the company technology to help improve its chatbots.

Skift Take: This acqui-hire of Tel Aviv chatbot start-up Evature underlines the intense interest travel companies now have in natural-language search by text or voice — and for the technical talent that can make the magic happen.

— Sean O’Neill acquired a tiny software company called Evature, which is based in Tel Aviv and offers natural language and chatbot-related technologies for hotels, airlines, travel agencies, and airports.

The companies did not disclose the terms of the deal, but only a small sum was likely involved. The company is said to have raised $5 million in funding, and the deal has all the appearances of being an acqui-hire.

A spokesperson said that the company acquired Evature “to support research-and-development efforts generally, but also specifically in the area of deep learning and artificial intelligence. All of this is a part of Booking’s ongoing dedication to testing new areas of technology innovation.”

The sale came after this summer’s news that is opening a research and development center in Tel Aviv that will recruit dozens of employees. The Priceline Group-owned conglomerate is using Evature as a base for the center.

Evature has 10 employees, half of whom will remain in Israel while the other five will move to’s headquarters development center in Amsterdam.

Evature’s signature product is a virtual agent named Eva (Expert Virtual Agen) that conducts natural language interactions with customers on behalf of travel companies. As of earlier this year, the tool’s trained bots could act as human travel agents in trials.

That product Eva was an outgrowth of its pivot, around 2012 when it shifted to focus on voice technology and received $2 million from Concur’s Perfect Trip Fund.

Amadeus Ventures, the venture funding arm of the travel technology giant, had quietly invested in the company more recently for an undisclosed sum.

The company raised $5 million in funding, according to The Marker, an Israeli business newspaper.

Evature was founded in 2009 to focus on providing text-based, or semantic, travel search technology to companies that wanted to have more Google-like search interfaces instead of drop-down boxes and widgets.

Company founder Barry Volinskey declined to talk about the deal. Since July, his co-founder Tal Weiss has started describing himself as a senior developer at The deal appears to have been in the works since last spring.


Evature’s focus on natural-language use through chatbots dovetails with a broader industry interest in machine learning, and artificial intelligence, with everyone from meetings-and-events companies, airlines, Facebook, TripAdvisor and startups like Lola experimenting with variations on the concept.

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Brand USA Says It Is Confident It Will Still Be Here in 2018

Nicolas Mirguet  / Flickr

Brand USA said it’s full speed ahead for its marketing goals this year. Pictured are tourists taking a selfie on a New York City rooftop. Nicolas Mirguet / Flickr

Skift Take: Brand USA is optimistic about its future and is ending its budget year by meeting its partner contributions’ goal. But with international visitation in the U.S. continuing to decline, it hopes to get smarter and more strategic with how it spends its marketing dollars in the coming year.

— Dan Peltier

Brand USA, the national destination marketing organization for the United States, may have nine lives.

During a marketing committee conference call Wednesday, Brand USA executives downplayed the prospect that its existence would be terminated despite a provision in the Trump administration’s fiscal 2018 budget proposal that called for its funding to be killed. Over the years, Brand USA has also been the target of conservative budget hawks.

However, each Congressional subcommittee that has discussed Brand USA’s inclusion in the budget has supported the organization and voted to keep Brand USA fully funded, said Christopher Thompson, president and CEO of Brand USA.

Prior to the Trump budget proposal, Brand USA had been reauthorized and funded through 2020, said Anne Madison, chief strategy and communications officer.  She added that the organization has received tremendous support from the travel industry.

“The president’s budget is a statement of priorities and the power of purse lies in hands of Congress,” said Madison during the call. “We feel very confident about our future.”

The fiscal 2018 budget is slated to be voted on this fall and given ongoing gridlock in Congress, it’s unclear if and when Brand USA’s funding would clear the final hurdle.

In addition to the existential threat from the White House, the organization is also dealing with a decline in international arrivals to the U.S. in 2016, which has continued into this year.

Despite a budget battle and various marketing challenges this year, the organization is seeing light on the horizon. Partner contributions, which were initially down during the first four months of 2017, will exceed the organization’s goal of $100 million by the end of the fiscal year, which ends on September 30, said Tom Garzilli, chief marketing officer. Garzilli said this is the fifth year that Brand USA has exceeded its partner cash and in-kind contributions goal of $100 million.

Assuming Brand USA escapes its budget battle unscathed and fully funded during its next fiscal year, it plans to spend less and get more creative with what resources and products it already has, said Garzilli. “We want to focus less on agencies and production cost,” he said.

Brand USA has its budget set at $155.2 million for fiscal 2018. Getting smarter with how it spends its money on marketing the U.S. is also part of the game plan for next year, said Garzilli.

To that point, the organization realizes that a one-size-fits all approach, such as using the same platforms in each overseas market, isn’t feasible if it wants to meet its visitor and spending goals.

“We’ve really figured out the center of gravity with media in each market, said Barbara Richardson, chair of the Brand USA marketing committee and the chief of external relations for the Washington Metropolitan Area Transit Authority. “In a nutshell, we no longer will be treating Canada and India the same, for example.”

Of course, Brand USA should have had the wherewithal since day one to know that marketing messages have to be fine-tuned by region.

Getting more targeted with its marketing will help it focus more on influencer and micro-influencer marketing, for example, that drive attention to its website trip-planning content, said Garzilli.

Brand USA is still focused on its goal of helping attract 100 million international arrivals and $256 billion in spending to the U.S. per year by 2021, although it’s aware it could have difficulty meeting the arrivals portion of the goal.  –

International travelers spent $247.1 billion in the U.S. last year. The National Travel & Tourism Office has revised its projections and estimates downward, now saying that 94.1 million international travelers will visit the U.S. per year by 2021 — and that’s short of Brand USA’s goal.

Of course, the Trump administration’s anti-foreigner rhetoric has been a headwind.

The organization’s board meeting next week should provide more color on its outlook for specific countries in 2018, and how it plans to adapt its campaigns and operations in light of the revised international arrivals forecast.

Hurricane Irma Impact

Brand USA is still assessing the impact of Hurricanes Irma and Harvey on the U.S. mainland and the U.S. Virgin Islands and Puerto Rico, said Madison.

“During situations like this, we stop our promotional messaging when our partners stop their promotional messaging,” she said. “We want to make sure we’re doing this in a sensitive way.”

Thompson, who was previously CEO of Visit Florida, said he’s witnessed many hurricanes but nothing like Hurricane Irma. “Recovery is a very local thing in hurricanes,” said Thompson. “We’re still figuring out when to put the ‘we’re open for business’ message out there for some of these destinations.”

For more updates from the travel industry on Hurricane Irma, check out our live updates here.

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SBE Wants to Become the Ultimate Lifestyle Hospitality Group

Delano South Beach

The Delano South Beach is part of Morgans Hotel Group, which SBE bought in 2016. SBE has ambitions to be a lifestyle hospitality company. Delano South Beach

Skift Take: … Which is great and all, but can it really succeed?

— Deanna Ting

Los Angeles-based SBE got its start with the opening of a nightclub, Hyde, and in the 14 years since, the company has come to encompass not only nightclubs but restaurants, hotels, and residences whose brands include Umami Burger, SLS Hotels, and Katsuya.

Last year, SBE dramatically grew its hotel portfolio with the $82-million acquisition of the long-struggling Morgans Hotel Group.

That acquisition, which took more than two years to complete, finally closed in December 2016 and in the months since, SBE has been integrating its 13 Morgans properties into its portfolio.

At the time of the deal close, Bjorn Hanson, a clinical professor at the NYU Tisch Center for Hospitality and Tourism, called it a “great acquisition” and that the awareness of Morgans Hotels Group’s iconic brand portfolio would be especially attractive for SBE.

“Many people know the Mondrian name, and each of these Morgans hotels, in its own way, is its own brand. I don’t know what [SBE CEO] Sam Nazarian is planning to do — there could be cities where there could be a Hudson, a Delano and a Mondrian all in one city. But I think they all have a loyal enough following from both guests and what these brands represented, at times, in the earlier life of the company.”

Hudson, Delano and Mondrian are all Morgans brands.

In the 10 months since then, SBE has been integrating the Morgans properties, as well as announcing a possible merger with nightclub and restaurant operator Hakkasan Group. Should Hakkasan and SBE merge, they would form a nightclub/restaurant/hospitality company worth $1 billion.

Since word of a possible merger between the two companies broke in late March, however, there hasn’t been much news since.

An SBE spokesperson issued the following statement, regarding the merger, this month: “SBE remains in negotiations to complete a financial transaction in which SBE’s and Hakkasan’s formidable hospitality assets are combined into one company. We are looking forward to completing the transaction to accelerate our already robust expansion.”

While the SBE-Hakkasan transaction is ongoing, SBE is proceeding with its plans to become a leader in lifestyle hospitality.

Later this month, a Mondrian Park Avenue is opening in New York City. The hotel, which was originally slated to be an SLS hotel, now bears the name of one of the Morgans Hotel Group’s flagship brands.

SBE CEO Nazarian, who was an investor in the project for more than five years, was recently bought out of the deal by one of his developer partners in the project, and the hotel will be managed by Journal Hotels, which also manages the former Public Chicago (now known as Ambassador Chicago) and The Hollywood Roosevelt. Nazarian is reportedly seeking to open an SLS hotel in New York City at another location.

Skift recently spoke to Chadi Farhat, SBE’s newly appointed chief operating officer for the Middle East and Europe and the former interim chief commercial officer of Morgans Hotel Group, for an update on the Morgans integration, and SBE’s future plans.

“We are fully integrated,” Farhat said. “We’ve already integrated some of our food-and-beverage and nightlife brands into our existing brands.” He cited the introduction of Doheny Room locations in Los Angeles and Miami at Morgans hotels, and the new Umami Burger location at the Hudson Hotel in New York City.

Farhat’s new appointment also points to the increasing importance of SBE’s aspirations to be truly global. The Morgan acquisition certainly helped, and the company is opening a Mondrian in Doha later this year. He said the company was “targeting key markets like Milan, Paris, Berlin, Vienna, and Lisbon” for additional hotels.

He also stressed that SBE wants to be known for being much more than just a hotel group. “Our group is beyond just a hotel group,” Farhat said. “We are a global lifestyle hospitality provider. We provide a full experience to our guests. We offer true destinations and experiences — hospitality, cuisine, and design.”

To that end, too, Farhat hinted that the company would be launching a new loyalty program in 2018 but would not divulge further details.

“We are going to launch a loyalty program in 2018, a new program for SBE. It’s going to be a very unique program that is developed around guest experience and destinations,” he said. “It’ll be multi-vertical: hotels, culinary, design — something very unique.”

SBE currently has a loyalty program, called The Code. Farhat didn’t confirm whether the new program would share the same name, or how the program would change next year. It’s likely, however, that whatever loyalty program SBE launches next year will be a model that encompasses all of its brands and businesses that span across residential, hospitality, dining, and nightlife.

Farhat added that the company is paying close attention to technology to ensure the guest experience is better than what guests can already have in their homes.

“I want guests to say they want our tech at home,” he said. “Now when you go into a hotel, you often find that the technology in your house is higher than the one on property. We want to do the reverse of that — so you see great technology at our hotel and want it at home.”

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India Hotel Brand Oyo Rooms Attracts a $10 Million Strategic Investment From China Lodging Group

Oyo Rooms

Oyo Rooms markets itself to young couples in India who may need to getaway from the family for a bit to find some private time. Oyo Rooms

Skift Take: The 23-year old CEO of loss-generating hotel aggregator Oyo rooms has a business vision that has attracted total funding of $446 million to date. What could go wrong? Well …

— Sean O’Neill

China Lodging Group, which owns 3,541 hotels in China, has revealed it made a $10 million strategic investment in Oyo Rooms, a fast-growing marketplace for branded hotels in India.

The move follows last week’s $250 million funding round, led by SoftBank.

Taken altogether, Oyo Rooms has raised total funding of $446 million.

The investments highlight a funding arms race in a highly competitive space in India that finds aggregators branding and setting standards for previously unbranded and independent budget hotels.

China Lodging Group operates brands that include Joya, Manxin, and Ji. It is among the world’s 10 largest hotel groups by market capitalization, which is around $7.87 billion.

The Group’s Oyo investment includes a memorandum of understanding that Oyo is calling for a strategic alliance. The two companies did not share details but said it is likely they will help the other with inventory sourcing.

The agreement also mentions a possible collaboration with China Lodging Group’s loyalty program. That is intriguing because AccorHotels owns a tenth of HuaZhu Hotels Group, as China Lodging is also know, and since 2016 has enable guests to convert AccorHotels rewards points into HuaZhu rewards, and vice versa.

Delhi-based Oyo is primarily an online marketplace that aggregates small, unbranded hotels and puts the Oyo brand on them if they promise to provide a consistent quality of service.

Not a Global Standard Business Model

A year ago, a critic claimed that Oyo was — in broad brush — “a Ponzi scheme.” Part of that accusation was that Oyo was using its funding to buy room nights from hotels and then would claim these bookings as proof of growth regardless of whether Oyo was selling them to actual guests. Then the growth” could be used to justify more funding.

That claim was apparently wrong. Buying rooms nights was limited to less than 3 percent of the overall business, the company said in response to the critic. What’s more, the practice is also not wholly unusual, as was implied. Other companies, such as HotelTonight, have tried a similar version of it.

Other critics and competitors have speculated that Oyo’s gap between costs and revenue is dangerous. In response, the company said that its complex business is often misunderstood because it is “not emulating a global template.”

The India Ministry of Corporate Affairs hasn’t yet released Oyo’s full-year 2016 financial results. Oyo has filed financial results through March 2016.

Based on that data, Oyo lost $77.4 million, or Rs.496 crores, against income of $5 million, or Rs.32 crores, in the 15 months between January 2015 and the end of March 2016.

The losses were approximately 25 times higher than the prior period. There had been a loss of $3.12 million, or Rs.20 crores, in the 15 months between January 2014 and the end of March 2015.

In July 2017, Oyo revealed on its blog selected financial details that are more up-to-date.

According to these “interim unaudited” figures, Oyo’s “top-line has more than doubled in the past year.”

The company said it lost $50.7 million (Rs.325 crores) in the 15 months between January 2016 and the end of March 2017. That would mean it had brought its losses down by a third from the comparable prior 15-month period.

Oyo did not disclose its revenues for the period. It seems like a reasonable assumption that Oyo still has a large gap between its costs and its revenues in its several lines of business.

On a positive note, the company said that, most recently, its margins per transaction have become greater than 15 percent, on average.

Competitive Space

Oyo faces competition from rival branded-room aggregators like the pioneer Treebo, which received $34 million last week in a funding round led by Chinese venture capitalists, and Accel- and Goldman Sachs-backed FabHotels, which received $25 million earlier this summer.

Adding to the buzz around the sector is word that MakeMyTrip, the largest India-based online travel agency, aims to create its own branded network.

To compete, Oyo is attempting to become a preferred brand. It said it has been making strides in key parts of its business. Customer satisfaction with stays at Oyo properties in the past year has more than doubled. Recently, about 42 percent of consumers said they would be willing to recommend the service to others, according to Oyo’s quotes of its net promoter score, a commonly used consumer satisfaction metric.

Softbank’s View

Softbank, the Japanese conglomerate, invested in Oyo via its Vision Fund, which has invested billions in various companies, with a mix of wins and losses in India so far.

One reason Softbank has said it likes Oyo more than other hotel networks is that Oyo is attempting to be more than a makeover and marketing agency for property owners. By branching out into other offerings, such as running a property on behalf of an owner and offering a co-working space concept. In this way, Oyo positions itself as an asset management tool for India’s business-owning class.

SoftBank is also apparently enamored with the amount of direct business that Oyo Rooms attracts to its website and app, even citing a figure — 98 percent — that doesn’t seem credible. For instance, on a recent random night, was listing 99 Oyo properties in Delhi alone. Even if that direct figure is severely inflated, it appears Oyo could be creating a brand that is less dependent than others on expensive distributors.

Clearly, by leading an investment round of $250 million, Softbank’s analysts believe in Oyo’s vision.

With the $250 million in funding, OYO rooms founder and CEO Ritesh Agarwal said in an interview that the company wants to up its software engineering game so that it can improve its performance in specific measures, such as reducing the time it takes a consumer to transact a booking on its mobile app.

Agarwal also wants to bring the branded budget hotel model to other markets in Southeast Asia. (Besides India, it is also in Nepal and Malaysia.) He also wants to continue to diversify beyond the mainstay business of branded budget hotels.

As you would expect with any company, not everyone wants to be in on the bet. Anirudh Damani, who had invested in the company around 2012 has cashed out his holdings while wishing the company his best via public statements. Separately, early investor DSG Consumer Partners has partly cashed out.

Ryan Wolkov

PRC Time Shares

Author: Ryan Wolkov

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